Question
The current price of Facebook stock is 210. The continuously compounded risk free rate is 3% per annum. Assume that the Facebook stock price follows
The current price of Facebook stock is 210. The continuously compounded risk free rate is 3% per annum. Assume that the Facebook stock price follows a lognormal distribution and that there is no dividend payment in the next 12 months. The annualized volatility Facebook stock return is 50%. What is the risk-neutral mean of the Facebook stock price in one year?
Please run a Monte Carlo simulation to answer this question. You should choose the number of trials so that the standard error of your mean estimate is less than $10. Note that you can use the excel function NORMSINV(RAND( )) to generate random draws from a standard normal distribution.
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